UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                   FORM 10-QSB
                                   (Mark One)


[X]  QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)
     OF  THE  SECURITIES EXCHANGE ACT OF 1934


                For the quarterly period ended September 30, 2006

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION 13 OR 15 (d)
     OF THE  SECURITIES EXCHANGE ACT OF 1934


                 For the transition period from ______ to ______

                          Commission File No. 0 - 20660


                               DIRECT INSITE CORP.
        (Exact name of Small Business Issuer as specified in its Charter)


             Delaware                                         11-2895590
  (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                         Identification No.)


    80 Orville Drive, Bohemia, N.Y.                             11716
(Address of principal executive offices)                      (Zip Code)

        Registrant's telephone number, including area code (631) 873-2900

Indicate  by check  mark  whether  the  registrant:  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                 Yes   X      No

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares of $.0001 par value  stock  outstanding  as of  November 1,
2006 was: 5,253,384

Transitional Small Business Disclosure Format (check one): Yes       No  X
                                                               ---      ---

<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES

                                      INDEX



<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION                                                                              Page
<S>   <C>                                                                                                    <C>
     Item 1

     Condensed Consolidated Balance Sheets as of September 30, 2006 (Unaudited) and
       December 31, 2005 .................................................................................    3

     Condensed Consolidated Statements of Operations
       For the Three and Nine Months Ended September 30, 2006 and 2005 (Unaudited)........................    4

     Condensed Consolidated Statements of Cash Flows
       For the Nine Months Ended September 30, 2006 and 2005 (Unaudited)..................................    5

     Notes to Condensed Consolidated Financial Statements (Unaudited) ....................................    6

     Item 2

     Management's Discussion and Analysis or Plan of Operations ..........................................   18

     Item 3

     Controls and Procedures..............................................................................   25

PART II - OTHER INFORMATION

     Item 1. Legal Proceedings ...........................................................................   27

     Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..................................   27

     Item 3. Defaults Upon Senior Securities .............................................................   27

     Item 4.  Submission of Matters to a Vote of Security Holders ........................................   27

     Item 5. Other Information ...........................................................................   27

     Item 6. Exhibits.....................................................................................   27

     Signatures ..........................................................................................   28


CERTIFICATIONS ...........................................................................................   29
</TABLE>
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2006 AND DECEMBER 31, 2005
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                                  September 30,         December 31,
                                                                                      2006                 2005
                                                                             --------------------- --------------------

<S>                                                                           <C>                  <C>
(Unaudited) (Audited)
ASSETS
Current assets
  Cash and cash equivalents                                                   $             704     $             364
  Accounts receivable, net of allowance for doubtful accounts of
   $0 in 2006 and 2005                                                                    1,427                 1,858
  Prepaid expenses and other current assets                                                  73                   195
                                                                             --------------------- --------------------
       Total current assets                                                               2,204                 2,417

Property and equipment, net                                                                 436                   446
Other assets                                                                                285                   318
                                                                             --------------------- --------------------
         TOTAL ASSETS                                                         $           2,925     $           3,181
                                                                             ===================== ====================

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
  Short-term revolving loans                                                  $             331                   695
  Current portion of capital lease obligations                                               66                    99
  Notes payable and current portion of long-term debt                                     1,384                   995
  Accounts payable and accrued expenses                                                   2,131                 1,962
  Dividends payable, current                                                              2,304                 1,775
  Deferred revenue                                                                          571                   796
  Warrant liability                                                                         444                   459
  Liabilities from discontinued operations                                                   47                    61
                                                                             --------------------- --------------------
       Total current liabilities                                                          7,278                 6,842

Notes payable and long-term debt, net of current portion                                    104                     -
Capital leases, net of current portion                                                       25                    73
                                                                             --------------------- --------------------
       Total liabilities                                                                  7,407                 6,915
                                                                             --------------------- --------------------

Commitments and contingencies

Shareholders' deficiency
  Preferred stock, $0.0001 par value; 2,000,000 shares authorized;
    Series A Convertible Preferred, 134,680 issued and outstanding in 2006 and
    2005; liquidation preference of $2,750,000 in 2006 and 2005                               -                     -
    Series B Redeemable Preferred, 974 shares issued and outstanding in
    2006 and 2005; liquidation preference of $974,075 in 2006 and 2005                        -                     -
    Series C Redeemable Preferred, 2,000 shares issued and outstanding in 2006
    and 2005; liquidation preference of $2,000,000 in 2006 and 2005
    Series D Redeemable Preferred, 100 shares issued and outstanding in 2006
    and 2005; liquidation preference of $100,000 in 2006 and 2005
  Common stock, $0.0001 par value; 50,000,000 shares authorized; 5,007,628
  and 4,972,955 shares issued in 2006 and 2005,respectively; and 4,967,701
  and 4,933,028 shares outstanding in 2006 and 2005, respectively                             -                     -
  Additional paid-in capital                                                            113,087               112,905
  Accumulated deficit                                                                  (117,241)             (116,311)
                                                                             --------------------- --------------------
                                                                                         (4,154)               (3,406)
  Common stock in treasury, at cost  - 24,371 shares                                       (328)                 (328)
                                                                             --------------------- --------------------
       Total shareholders' deficiency                                                    (4,482)               (3,734)
                                                                             --------------------- --------------------

          TOTAL LIABILITIES AND SHAREHODERS' DEFICIENCY                       $           2,925      $          3,181
                                                                              ====================  ==================
</TABLE>
See notes to condensed consolidated financial statements.                      3
<PAGE>

                      DIRECT INSITE CORP. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 and 2005
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                              Three Months Ended                  Nine Months Ended
                                              ------------------                  -----------------
                                                 September 30,                      September 30,
                                                 -------------                      -------------
                                             2006            2005              2006               2005
                                                          (restated)                           (restated)
                                        ----------------------------------------------------------------------
<S>                                             <C>             <C>              <C>               <C>
Revenue                                         $    2,185       $   2,512       $    6,396        $     6,910
                                                ----------       ---------       ----------        -----------
Costs and expenses
  Operations, research and development                 785           1,032            2,851              3,079
  Sales and marketing                                  296             516            1,109              1,547
  General and administrative                           612             794            1,957              2,266
  Amortization and depreciation                         76              95              239                324
                                                ----------       ---------       ----------        -----------
                                                     1,769           2,437            6,156              7,216
                                                ----------       ---------       ----------        -----------
Operating income (loss)                                416              75              240               (306)

Other expense (income)
  Change in fair value of warrant liability            254            (212)             (15)              (120)
  Other expense, net                                    45               1              108                  1
  Interest expense, net                                210             156              543                361
                                                ----------       ---------       ----------        -----------
(Loss) income from continuing operations               (93)            130             (396)              (548)

Loss from discontinued operations                       --              (2)              (4)               (10)
                                                ----------       ---------       ----------        -----------
Net (loss) income                                      (93)            128             (400)              (558)

Preferred stock dividends                             (181)           (164)            (529)              (489)
                                                ----------       ---------       ----------        -----------
Net loss attributable to common shareholders    $     (274)      $     (36)      $     (929)       $    (1,047)
                                                ==========       =========       ==========        ===========

Basic and diluted loss per share:
  Basic and diluted loss from
  continuing operations                         $    (0.06)      $   (0.01)      $    (0.19)       $     (0.23)
                                                ==========       =========       ==========        ===========
Basic  and  diluted  loss per  share
  from discontinued operations                        0.00            0.00             0.00               0.00
                                                ----------       ---------       ----------        -----------
Basic and diluted loss per share               $     (0.06)       $  (0.01)      $    (0.19)       $     (0.23)
                                                ==========       =========       ==========        ===========
Basic and diluted weighted average
  common shares outstanding                          4,941           4,679            4,918              4,600
                                                ==========       =========       ==========        ===========
</TABLE>
See notes to condensed consolidated financial statements.                      4
<PAGE>
                               DIRECT INSITE CORP.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                             2006             2005
                                                                                                           (Restated)
                                                                                     ----------------- ------------------
<S>                                                                                    <C>                 <C>
Cash flows from operating activities

 Loss from continuing operations                                                       $        (396)      $      (548)
 Adjustments to reconcile loss from continuing operations
  to net cash used in continuing operations:
   Amortization and depreciation:
    Property and equipment                                                                       239               324
    Discount on debt                                                                             375               111
    Common stock and options issued for services                                                  --               342
    Amortization of deferred stock based compensation                                            136                58
    Change in fair value of warrant liability                                                    (15)             (120)

  Changes in operating assets and liabilities:
    Accounts receivable                                                                          430               224
    Prepaid expenses and other current assets                                                    146               102
    Other assets                                                                                   7                (6)
    Accounts payable and accrued expenses                                                        217               (99)
    Deferred revenue                                                                            (225)             (508)
                                                                                     ----------------- ------------------
       Net cash provided by (used in) continuing operations                                      914              (120)
                                                                                     ----------------- ------------------

  Cash flows from discontinued operations:
  Loss from discontinued operations                                                               (4)              (10)
  Change in:
    Assets and liabilities from discontinued operations                                          (15)              (45)
                                                                                     ----------------- ------------------
       Net cash used in discontinued operations                                                  (19)              (55)
                                                                                     ----------------- ------------------
       Net cash provided by (used in) operating activities                                       895              (175)
                                                                                     ----------------- ------------------

Cash flows used in investing activities
 Expenditures for property and equipment                                                         (73)             (196)
                                                                                     ----------------- ------------------

Cash flows from financing activities
 Repayment of revolving loans, net                                                              (364)             (489)
 Proceeds from short-term notes                                                                   --               750
 Repayment of capital lease obligations                                                          (82)              (94)
 Repayment of long-term debt                                                                     (36)              (37)
                                                                                     ----------------- ------------------
       Net cash (used in) provided by financing activities                                      (482)               130
                                                                                     ----------------- ------------------

Net increase (decrease) in cash and cash equivalents                                             340              (241)
Cash and cash equivalents - beginning of period                                                  364               306
                                                                                     ----------------- ------------------
Cash and cash equivalents - end of period                                             $          704   $            65
                                                                                     ================= ==================

Cash paid for interest                                                                $          129   $           248
                                                                                     ================= ==================
Non-cash investing and financing activities:
Equipment acquired through issuance of note payable and leases                        $          154   $            43
                                                                                     ================= ==================

Debt discount on loans                                                                $           --   $           394
                                                                                     ================= ==================
</TABLE>
See notes to condensed consolidated financial statements.                      5

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005



1.   Interim Financial Information

     The condensed  consolidated balance sheet as of September 30, 2006, and the
     condensed  consolidated  statements  of  operations  and cash flows for the
     three and nine month periods ended  September 30, 2006 and 2005,  have been
     prepared  by the  Company  and are not  audited.  These  interim  financial
     statements include all adjustments which management considers necessary for
     a fair  presentation  of the  financial  statements  and  consist of normal
     recurring  items. The results of operations for the nine month period ended
     September 30, 2006, are not  necessarily  indicative of results that may be
     expected for any other interim period or for the full year.

     These unaudited condensed  consolidated financial statements should be read
     in conjunction with the consolidated financial statements and notes thereto
     for the year ended December 31, 2005 included in the Company's  Form-10KSB.
     The  accounting  policies  used  in  preparing  these  unaudited  condensed
     consolidated  financial  statements are consistent  with those described in
     the December 31, 2005 consolidated financial statements.


2.   The Company

     Direct Insite Corp. and subsidiaries (the "Company"),  primarily operate as
     an  application  service  provider  ("ASP"),  that  markets  an  integrated
     transaction based "fee for service" offering called Invoices On-Line (IOL),
     an  electronic  invoice   presentment  and  payment  (EIP&P)  service  that
     processes  high  volumes  of  transactional  data for  invoice  presentment
     purposes delivered via the Internet on a global basis.

     The Company also  provides  Custom  Engineering  Services  which are single
     contractual  agreements  involving  modification  or  customization  of the
     Company's  proprietary  ASP  software  solution.  Additionally  the Company
     provides  service  offerings  in the  form  of its  patented  dbExpress  TM
     technology,  a  management  information  tool that allows users to visually
     data mine large volumes of transactional data via the Internet.  A complete
     Internet  Customer Care tool set  integrated  with the EIP&P product set is
     also available.  The Company  operates fully redundant data centers located
     at its main office in Bohemia,  N.Y. and in an IBM co-location  facility in
     Newark, NJ.

     Management's  liquidity  plans are discussed in Note 11. Also, as described
     in Note 10, the Company has two customers that accounted for  approximately
     68.5% and 29.5% of the  Company's  revenue for the nine month  period ended
     September 30, 2006 and 67.7% and 29.8% of revenue for the nine month period
     ended  September 30, 2005.  Loss of either of these  customers would have a
     material adverse effect on the Company.

3.   Stock Based Compensation

     Stock Options
     -------------

     Effective  January 1, 2006, the Company adopted the fair value  recognition
     provisions  of  Statement of Financial  Accounting  Standards  ("SFAS") No,
     123(Revised  2004),  "Share-Based  Payment",  ("SFAS  123(R)"),  using  the
     modified-prospective-transition method. As a result, for the three and nine
     month periods ended September 30, 2006, the Company recorded $21,000 ($0.00
     per share) and $69,000  ($0.01 per share),  respectively,  in  compensation
     expense for the fair value of options.  At September  30,  2006,  there was
     $185,000 of total unrecognized  compensation costs related to stock options

                                                                               6

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005

3.   Stock Based Compensation (continued)

     granted which is expected to be recognized  over a weighted  average period
     of 2.0 years.

     Nonqualified  and  incentive  stock options have been granted to directors,
     officers and employees of the Company under our Stock Option Plans. Options
     generally  vest over 3 years and  expire  five  years  from the date of the
     grant. At September 30, 2006, 6,720,000 shares were authorized for issuance
     under the stock option plans.  Awards that expire or are cancelled  without
     delivery of shares generally become available for issuance under the plans.
     The Company issues new shares to satisfy stock option exercises. There were
     360,000 options granted during the nine months ended September 30, 2006.

     A summary  of option  activity  under the plans for the nine  months  ended
     September 30, 2006 is as follows:
<TABLE>
<CAPTION>
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
                                                                                  Weighted Average
                                                                                     Remaining         Aggregate Intrinsic
                                             Shares          Weighted Average        Contractual             Value
                                         (in thousands)      Exercise Price        Term (in years)      (in thousands)
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
   <S>                                        <C>                 <C>                     <C>                  <C>
   Balance, December 31, 2005                 4,854               $1.25
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
       Granted                                  360               $0.25
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
       Exercised                               --
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
       Canceled                                 610               $1.42
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
       Forfeited                               --
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
   Balance, September 30, 2006                4,604               $1.15                   2.0                  $136
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
   Exercisable, September 30, 2006            4,140               $1.23                   2.0                  $ 21
   ------------------------------------ -------------- ------------------------ -------------------- ----------------------
</TABLE>
     A summary of the status of the Company's  non-vested shares as of September
     30, 2006 and changes  during the nine months  ended  September  30, 2006 is
     presented below:
<TABLE>
<CAPTION>
------------------------------------------- ----------------------------------- ----------------------------------------------

              Non-vested Shares                          Shares (000)           Weighted-average Grant Date Fair Value
------------------------------------------- ----------------------------------- ----------------------------------------------

<S>                                                              <C>                          <C>
Non-vested at January 1, 2006                                    211                          $0.65
------------------------------------------- ----------------------------------- ----------------------------------------------
Granted                                                          360                          $0.13
------------------------------------------- ----------------------------------- ----------------------------------------------
Vested                                                           107                          $0.65
------------------------------------------- ----------------------------------- ----------------------------------------------
Forfeited                                                          0                           $ --
                                            =====================================
------------------------------------------- ----------------------------------- ----------------------------------------------
Non-vested at September 30, 2006                                 464                          $0.25
                                            =====================================
------------------------------------------- ----------------------------------- ----------------------------------------------
</TABLE>
     The  total  fair  value of  shares  vested  during  the nine  months  ended
     September 30, 2006 was $69,000.

     Prior to January 1, 2006, the Company's  stock-based employee  compensation
     plans were accounted for under the recognition  and measurement  provisions
     of Accounting  Principles  Board Opinion  ("APB") No. 25,  "Accounting  for
     Stock Issued to Employees" ("APB No. 25"), and related Interpretations,  as
     permitted by Financial  Accounting  Standards Board ("FASB")  Statement No.
     123, "Accounting for Stock-Based  Compensation",  ("SFAS 123"). The Company
     did  not  recognize  stock-based  compensation  cost in its  statements  of
     operations  for periods prior to January 1, 2006 as options  granted had an
     exercise price equal to the market value of the underlying  common stock on
     the date of the grant.  However,  compensation expense was recognized under


                                                                               7
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


3.   Stock Based Compensation (continued)

     APB No. 25 for  certain  options  granted to an  employee  and  certain non
     employees of the Company  based upon the  intrinsic  value (the  difference
     between  the  exercise  price at the date of the grant and the deemed  fair
     value of the common stock).

     Three and Nine Months Ended September 30, 2005
     ----------------------------------------------

     As  was  permitted   under  SFAS  No.  148,   "Accounting  for  Stock-Based
     Compensation--Transition  and Disclosure",  which amended SFAS No. 123, the
     Company  elected  to  continue  to follow  the  intrinsic  value  method in
     accounting  for  its  stock-based  employee  compensation  arrangements  as
     defined  by  APB  No.  25,  and  related  interpretations   including  FASB
     Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
     Compensation",  an  interpretation  of APB  No.  25.  The  following  table
     illustrates  the  effect on net loss and net loss per share if the  Company
     had  applied  the fair  value  recognition  provisions  of SFAS No.  123 to
     stock-based employee compensation (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                                            -------------------- --------------------
                                                                            Three Months Ended    Nine Months Ended
                                                                            September 30, 2005   September 30, 2005

                                                                                (restated)           (restated)
                                                                            -------------------- --------------------
            <S>                                                                  <C>               <C>
            Net (loss) income attributable to common shareholders
             As reported                                                         $      (36)       $      (1,047)
            Add: Stock-based compensation expense included
             in net loss attributable to common shareholders                              1                    7
            Less:  Stock-based employee compensation
              expense determined under fair value-based
              method for all awards                                                    (238)                (685)
                                                                                 -----------        ------------
            Pro forma                                                            $     (273)        $     (1,725)
                                                                                 ==========         ============

            Basic and diluted net loss per share
             As reported                                                         $    (0.06)       $       (0.19)
                                                                                 ==========         ============
            Pro forma                                                            $    (0.06)       $       (0.35)
                                                                                 ==========         ============
</TABLE>
     The fair value of Company  common stock  options  granted to employees  are
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the following assumptions:  (1) expected volatility ranging from 71.4%
     to 72.6% in 2005, (2) risk-free  interest rates ranging from 4.00% to 4.50%
     in 2005 and (3) expected lives of 4.50 years in 2005.

4.   Restatement of Prior Periods

     The Company has restated its condensed  consolidated  financial  statements
     for the three and nine month  periods  ended  September 30, 2005 to correct
     the  accounting for warrants  issued in connection  with its March 29, 2005
     sale of Senior  Subordinated  Notes (See Note 8). The corrected  accounting
     reflects the warrants as a derivative  liability under the guidance of SFAS
     133 and EITF 00-19 and the resultant debt discount on the notes  determined

                                                                               8
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005



4.   Restatement of Prior Periods (continued)

     on the  residual  value basis.  The Company  previously  accounted  for the
     warrants  as  equity  and the  resultant  debt  discount  on the  notes was
     determined on a relative fair value basis.

     The effects of the  restatement  on the  condensed  consolidated  financial
     statements  for the three and nine month periods  ended  September 30, 2005
     were:

       Condensed Consolidated Balance Sheet:
<TABLE>
<CAPTION>
           ---------------------------------------- --------------------------- -----------------------
                                                      As previously reported         As Restated
           ---------------------------------------- --------------------------- -----------------------
           <S>                                      <C>                         <C>
           Note payable, net of discount
                                                    $       527                 $       297
           ---------------------------------------- --------------------------- -----------------------
           Warrant liability                        $        --                 $       444
           ---------------------------------------- --------------------------- -----------------------
           Total liabilities                        $     5,625                 $     5,839
           ---------------------------------------- --------------------------- -----------------------
           Additional paid-in-capital               $   113,301                 $  $112,979
           ---------------------------------------- --------------------------- -----------------------
           Total stockholders' deficiency           $    (2,969)                $    (3,183)
           ---------------------------------------- --------------------------- -----------------------
</TABLE>

Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                      Three Months Ended                      Nine Months Ended
                                                      September 30, 2005                      September 30, 2005
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
                                                  As previously                         As previously
                                                    reported         As Restated         reported         As Restated
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
<S>                                             <C>               <C>                <C>                <C>
Interest expense, net                           $        (148)    $        (156)     $        (348)     $        (361)
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
Change in value of warrants                     $          --     $         212      $           --     $         120
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
(Loss) income from continuing operations        $        ( 74)    $         130      $        (656)     $        (548)
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
Net (loss) income                               $        ( 76)    $         128      $        (666)     $        (558)
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
Net loss attributable to common shareholders
                                                $        (240)    $        ( 36)     $      (1,155)     $      (1,047)
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
Earnings per share:
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
  Loss from continuing operations
attributable to common shareholders             $       (0.05)    $       (0.01)     $       (0.25)     $       (0.23)
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
  Loss attributable to common shareholders
                                                $       (0.05)    $       (0.01)     $       (0.25)     $       (0.23)
----------------------------------------------- ----------------- ------------------ ------------------ -----------------
</TABLE>
5.   Reclassifications

     Certain  reclassifications  have  been made to the  condensed  consolidated
     financial statements shown for the prior period in order to have it conform
     to the current period's classifications.

     In the  current  quarter we have  reclassified  certain  components  of our
     shareholders'  equity  section  to  reflect  the  elimination  of  unearned
     compensation arising from unvested share-based compensation pursuant to the
     requirements of Staff Accounting  Bulletin No. 107, regarding  Statement of
     Financial  Accounting  Standards No. 123(R),  "Share-Based  Payment".  This
     unearned  compensation was previously recorded as an increase to additional
     paid-in-capital with a corresponding  reduction to shareholders' equity for
     such  unearned  compensation.  This  reclassification  has no effect on net
     income or total shareholders'  equity as previously  reported.  The Company
     will record an increase to additional  paid-in-capital  as the  share-based
     payments vest.

                                                                               9
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


6.   Discontinued Operations

     In  2001,  the  Company  and  Platinum  Communications,  Inc.  ("Platinum")
     completed  a  merger  under  an  Agreement  and  Plan  of  Merger  ("Merger
     Agreement").  Under the  Merger  Agreement,  a newly  formed  wholly  owned
     subsidiary of the Company  acquired all of the outstanding  common stock of
     Platinum.  As a result of the lack of development of the Platinum  business
     and to focus the  Company's  resources  on its core  business,  in December
     2003, the Company decided to close the operations of Platinum. Accordingly,
     the assets and  liabilities  of  Platinum  are  presented  as  discontinued
     operations  for both the current and prior  period.  At September 30, 2006,
     liabilities  of the  discontinued  operation  consist of loans and accounts
     payable of $47,000.


7.   Accounts Receivable and Revolving Loans

     The Company  has an Accounts  Receivable  Purchase  Agreement  with a Bank,
     whereby  the Company  from time to time may assign  some of their  accounts
     receivable to the Bank on a full  recourse  basis.  Upon  specific  invoice
     approval, an advance of 80% of the underlying receivable is provided to the
     Company.  The  remaining  balance  (20%),  less  an  administrative  fee of
     approximately  0.5% plus interest at the rate of 1 1/2% per month,  is paid
     to the  Company  once the  customer  has paid.  The  maximum  amount of all
     assigned receivables outstanding at any time shall not exceed $1.5 million.
     The initial term of the agreement was for one year, and continues until due
     notice  of  termination  is  given  at any  time  by  either  party  to the
     agreement.  At September 30, 2006,  the Company had assigned  approximately
     $414,000  of  accounts  receivable  to the Bank and  received  advances  of
     $331,000.

     In May 2004,  the Company  entered into an Agreement with DIRI Rec Fund LLC
     (the "Rec Fund") whereby the Company may assign certain accounts receivable
     on a full recourse basis to the Rec Fund as security for advances  (loans).
     The Rec Fund was  established  solely to advance  funds to the Company upon
     the  assignment of  receivables.  The Rec Fund is  administered  by a third
     party trustee.  Certain  shareholders  of the Company and a Director of the
     Company are the principal  investors in the Rec Fund.  Under the Agreement,
     the Company  pays  interest at the rate of one (1) percent per month on the
     maximum  purchase  amount (as defined in the agreement) of the Rec Fund and
     pays the administrative costs of the Rec Fund which approximate $12,000 per
     year.  At September 30, 2006 the Rec Fund had a total  principal  available
     for  assignment of $250,000 and the Company had  outstanding  advances from
     the Rec Fund of $0 resulting in an unused  availability under the agreement
     of $250,000.

8.   Debt

     Notes payable
     -------------

     At September 30, 2006 notes payable consist of the notes as described below
     of $750,000, equipment term notes of $147,000 less the long-term portion of
     $106,000 and lines of credit of $593,000 as further described below.

     In March 2005,  the Company  entered into a Securities  Purchase  Agreement
     (the   "Agreement")   with  Sigma   Opportunity   Fund  LLC  ("Sigma")  and
     Metropolitan   Venture  Partners  II,  L.P.  ("MetVP"),   collectively  the
     "Buyers",  whereby the Buyers purchased Senior  Subordinated  Secured Notes
     (the "Note Purchase") in the aggregate  amount of $750,000.  The notes bear

                                                                              10
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005



8.   Debt (continued)

     interest at the rate of five percent (5%) per year beginning June 28, 2005,
     and are  payable  quarterly  in cash or common  stock at the  option of the
     Buyers.  The Notes  mature on the earlier to occur of (i) October 10, 2006,
     or (ii)  the date on which  demand  for  payment  of the  loan  payable  to
     JPMorgan Chase Bank ("JPMC") is made. In connection  with the note purchase
     the Buyers were issued  warrants to purchase  750,000  common shares of the
     Company.  The initial exercise price of the warrants was $0.90 per share of
     common stock.

     Sigma had an exclusive  right to lead a  "Follow-on-Financing"  for 45 days
     following the closing and the Company had granted Sigma additional time. In
     the event that the  Follow-on-Financing  had occurred the exercise price of
     the warrants  issued in conjunction  with the Note Purchase would have been
     adjusted   as   agreed   between   the   Company   and  the   buyers.   The
     Follow-on-Financing was not consummated; as such, the exercise price of the
     warrants was reduced to $0.01 per common share.

     Under the terms of the  agreement,  on September 1, 2005 the Company  filed
     with the  Securities and Exchange  Commission a  Registration  Statement to
     register a number of common  shares  equal to the maximum  number of shares
     that would be  issuable  to the Buyers in payment of  interest on the notes
     through the  maturity  date plus a number of common  shares  issuable  upon
     exercise  of the  warrants.  The  Company is  required  to pay  liquidating
     damages  in the amount of 1% per month of the  purchase  price paid for the
     first two months  and 2% for the  remaining  months to the buyers  upon the
     occurrence of the following events:

          1.   Failure to file a registration statement by August 30, 2005
          2.   Failure to have the registration  statement declared effective by
               December 31, 2005
          3.   Failure  to  maintain  the   effectiveness  of  the  registration
               statement  until the earlier of (a) March 29, 2008,  (b) the date
               whereby all the  securities  may be sold pursuant to Rule 144 (c)
               the date on which the Buyers no longer hold the securities
          4.   Failure to be listed on the OTC Bulletin  Board,  American  Stock
               Exchange, NASDAQ, NASDAQ SmallCap or New York Stock Exchange
          5.   Failure to timely deliver warrant or interest shares.

     During the quarter ended  September 30, 2006,  the Company paid $115,000 of
     liquidated  damages and $35,000 of interest  and has accrued an  additional
     $5,000  of  liquidated  damages  as of  September  30,  2006.  The notes of
     $750,000 in  principal  plus  accrued  interest of $8,000 were paid in full
     subsequent  to  September  30, 2006.  The Company had filed a  registration
     statement for shares  underlying the warrants  issued in  conjunction  with
     these notes and this  registration  statement  was  declared  effective  on
     October 24, 2006.

     Under the provisions of EITF 00-19  "Accounting  for  Derivative  Financial
     Instruments  Indexed to, and Potentially Settled in, a Company's Own Stock"
     the Company  was  required to record the  warrants  issued as a  derivative
     liability at fair value on the date of issuance.  In  accordance  with SFAS
     133 "Accounting for Derivative Instruments and Hedging Activities", at each
     reporting  period this  liability  will be adjusted for changes in its fair
     value. The fair value of the warrants is determined using the Black Scholes
     valuation model. Actual period close common stock price ($0.60), applicable
     volatility rates (74.5%),  remaining  contractual life (5.5 years), and the
     period  close risk free  interest  rate  (4.6%) for the  warrants  expected
     remaining  useful  life  are the  key  assumptions  used  in the  valuation
     calculation.  Period to period  changes in fair value will be  recorded  as
     either an addition or charge to earnings.  These  additions or charges have

                                                                              11
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


8. Debt (continued)

     no cash  effect  over the life of the  instrument.  The  change in the fair
     value of the  warrants for the three and nine months  ended  September  30,
     2006 was $254,000  and  ($15,000),  respectively,  and is included in other
     expense  (income) in the  condensed  consolidated  financial  statement  of
     operations.

     The Company  recorded a debt  discount of  $565,000  based on the  residual
     value of the  proceeds  received and the fair value of the  warrants.  This
     discount  was  amortized  over  the life of the loan  using  the  effective
     interest rate method. Amortization of $153,000 and $375,000 was recorded as
     interest  expense  during the three and nine month periods ended  September
     30, 2006, respectively.

     In April  2006,  the Company  borrowed  $56,000  from a finance  company to
     purchase  computer  equipment.   The  note  is  secured  by  the  equipment
     purchased,  is  payable  over 36 months in equal  monthly  installments  of
     principal and interest of $1,800 and bears interest at 9.3% per annum.

     In September 2006, the Company  borrowed  $98,000 from a finance company to
     purchase  computer  equipment.   The  note  is  secured  by  the  equipment
     purchased,  is  payable  over 48 months in equal  monthly  installments  of
     principal and interest of $2,420 and bears interest at 8.8% per annum.

     Lines of credit
     ---------------

     On June 30, 2005, the Company  obtained a new line of credit ("LoC") in the
     principal  amount  of  $500,000  with  JPMC  evidenced  by  a  Grid  Demand
     Promissory  Note (the "Credit  Facility)  replacing a prior credit facility
     dated June 27, 2003, under  substantially  similar terms, but extending the
     original  Maturity  Date to June 30,  2007.  As a  condition  precedent  to
     providing  the  Credit  Facility,  the  JPMC  required  guarantees  of  our
     obligations  from Tall Oaks Group L.L.C.  ("Tall  Oaks") and Lawrence  Hite
     (managing  member of Tall Oaks) and a collateral  agreement from Tall Oaks.
     In  consideration  of the  issuance of such  guarantee  and delivery of the
     collateral agreement, on July 12, 2005, the Company issued and delivered to
     Tall Oaks  warrants  with an initial  exercise  price of $1.00 per share to
     purchase an aggregate of 500,000 shares of the common stock of Company.

     The LoC  permits  two forms of draw down;  one based upon prime  rate,  the
     second based upon LIBOR. The Company elected to draw down $500,000 applying
     the terms and conditions set forth for LIBOR. The interest rate is the JPMC
     reserve  adjusted  LIBOR plus 2.30%.  As of September 30, 2006, the balance
     outstanding was $500,000 and the applied interest rate was 7.05%.

     Also in 2003, the Company  obtained,  and fully drew upon, a second line of
     credit from Sterling  National Bank ("Sterling") in the amount of $250,000.
     The line is guaranteed by the Company's chairman,  secured by the assets of
     the Company and carries a variable  interest rate equal to Sterling's  base
     rate plus 2.0% (11.3% at September 30, 2006).

     Repayments are  calculated  monthly at 2.778% of the  outstanding  balance,
     plus  finance  charges,  and  continue  until  the line is fully  paid.  At
     September 30, 2006, the Company had an outstanding balance of approximately
     $93,000 under the line of credit.


                                                                              12
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


     Capitalized lease obligations
     -----------------------------

8.   Debt (continued)

     The Company has  equipment  under  capital  lease  obligations  expiring at
     various times through 2008. The assets and liabilities under capital leases
     are recorded at the lower of the present values


     of the  minimum  lease  payments  or the fair  values  of the  assets.  The
     interest rates pertaining to these capital leases range from 6.9% to 19.2%,
     and the net book value of the related assets is approximately $87,000 as of
     September 30, 2006.

9.   Shareholders' Deficiency

     Common Stock and Option Issuances
     ---------------------------------

     During the nine months ended  September 30, 2006, the Company issued 49,944
     shares of common  stock  valued at $22,000 to an employee as  compensation,
     64,729  shares  valued at  $24,000 as partial  settlement  of a  consulting
     agreement.  The Company  also issued  options to  purchase  360,000  common
     shares to certain  employees  during the nine months  ended  September  30,
     2006.  The options  have an exercise  price of $0.25 per share (the trading
     price of the shares at the date of the grant) and were  valued at  $48,000.
     The  valuation  was  determined  using the  Black-Scholes  method.  The key
     assumptions  used were a volatility of 73.7%,  a risk free interest rate of
     4.9% and expected life of 3.25 years.  Subsequent to September 30, 2006 the
     Company issued 285,683 common shares as payment in lieu of cash for certain
     liabilities totaling $71,000,  including 144,000 shares issued to Tall Oaks
     for  consulting  services  and  41,683  shares to Met VP in  settlement  of
     accrued interest.

     Earnings Per Share
     ------------------

     The Company  displays  earnings per share in accordance  with SFAS No. 128,
     "Earnings Per Share".  SFAS No. 128 requires dual presentation of basic and
     diluted  earnings per share ("EPS").  Basic EPS includes no dilution and is
     computed by dividing net income (loss)  attributable to common shareholders
     by the weighted average number of common shares outstanding for the period.
     Diluted EPS includes the potential  dilution that could occur if securities
     or other  contracts to issue common stock were  exercised or converted into
     common stock. Diluted earnings per share excludes potential common stock in
     the periods presented as their effect would have been anti-dilutive.

     Securities that could potentially dilute basic EPS in the future consist of
     the following (in thousands):
<TABLE>
     <S>                                                                  <C>
     Options to purchase common stock                                     4,604
     Warrants to purchase common stock                                    3,332
     Series A Convertible preferred stock                                 1,347
                                                                          -----
             Total potential common shares as of September 30, 2006       9,283
                                                                          =====
</TABLE>

10.  Products and Services

     The Company and its subsidiaries  currently operate in one business segment
     and provide two separate  products:  ASP  services  and custom  engineering
     services.

                                                                              13

<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005




10.  Products and Services (continued)
<TABLE>
<CAPTION>
                                                  Three Months Ended              Nine Months Ended
                                                    September 30,                   September 30,
                                           --------------------------------- -----------------------------
                                                   2006            2005            2006           2005
                                           ------------------ -------------- -------------- --------------
          <S>                                      <C>                <C>           <C>             <C>
          ASP IOL fees                             $1,707             $1,695        $ 4,823         $4,284
          Other ASP services                            8                  8             23             33
          Custom engineering fees                     470                809          1,550          2,593
                                                  -------            -------       --------        -------
               Total Revenue                       $2,185             $2,512         $6,396         $6,910
                                                   ======             ======         ======         ======
</TABLE>
     Major Customers
     ---------------

     For the three  months  ended  September  30, 2006 the Company had two major
     customers  that  accounted  for  67.5%  and  30.8% of the  Company's  total
     revenue.  These two customers  accounted for 68.5% and 29.5% of revenue for
     the nine months ended  September 30, 2006.  These  customers  accounted for
     63.8% and 33.5% of total  revenue for the three months ended  September 30,
     2005 and 67.7% and 29.8% of revenue for the nine months ended September 30,
     2005.  Accounts  receivable from these customers amounted to $1,389,000 and
     $1,833,000 at September 30, 2006 and December 31, 2005, respectively.

11.  Management's Liquidity Plans

     In order to meet cash  requirements and to achieve positive  operating cash
     flows the Company has and will  continue to take various  actions and steps
     that the  management  believes will enable it to attain these goals.  These
     actions include:

          o    In March 2005 the  Company  closed a Bridge Loan  financing  with
               Sigma and Met VP and  received  proceeds of  $750,000  less legal
               fees of $55,000.  These loans were repaid subsequent to September
               30, 2006 (see Note 8).

          o    The  Company  and  the  holders  of the  Series  A and  Series  B
               Preferred  stock  have  previously  agreed  to defer  payment  of
               dividends   until   February   1,  2006  and   April  15,   2006,
               respectively.  The  Company  may  seek to defer  these  dividends
               further. Management believes the Company is precluded from paying
               these  dividends  at  this  time  pursuant  to  Delaware  General
               Corporate Law.

          o    The Company may raise  additional  capital through private equity
               offerings and borrowing.  There is no assurance however that such
               capital would be available to the Company,  or if  available,  on
               terms and  conditions  that  would be  acceptable.  In 2004,  the
               Company  entered  into an  agreement  with DIRI Rec Fund  LLC,  a
               corporation  formed  and  funded  to loan  funds  to the  Company
               against  accounts  receivable,  and may  receive  advances  up to
               $250,000 from Diri Rec Fund (see Note 7).  Further,  in June 2005
               the Company  renewed for a period of two years the $500,000  loan
               previously   scheduled  to  mature  on  June  30,  2005  and  the
               guarantors  of this loan have  consented to this  extension  (see
               Note 8). The  guarantors  were  issued  warrants  and the Company
               could  receive  proceeds  of $500,000  from the  exercise of such
               warrants  which  expire on July 11,  2010,  although  there is no
               assurance that these warrants will be exercised (see Note 8).

                                                                              14
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


11.  Management's Liquidity Plans (continued)

          o    The  Company  continues  to strive to  increase  revenue  through
               offering  custom  engineering  services,  expanding and enhancing
               existing  product  offerings  such as IOL,  and  introducing  new
               product  offerings.  In 2004 we entered  into a new  agreement to
               provide IOL services to a Fortune 500 company.  Revenue from this
               new customer  accounted  for 30.8% and 29.5% of total revenue for
               the three and nine months ended  September  30, 2006.  Management
               anticipates  that revenue from this new customer will continue to
               increase  in 2006 and beyond and  expects to further  broaden our
               customer base in 2007,  although  there is no assurance  that the
               Company will be able to broaden this customer base.

          o    In 2006 the  Company  initiated  a cost  reduction  plan that has
               significantly  reduced  operating  costs while still enabling the
               Company to meet its commitments to its customers. Operating costs
               decreased by 27.4% and 14.7% for the three and nine month periods
               ended September 30, 2006 compared to the same periods in 2005.

          o    The Company continues to expand its marketing efforts in order to
               increase the customer base. In this regard,  in 2003, we became a
               business partner with IBM and through this relationship will work
               with IBM to achieve sales to new  customers.  We will continue to
               pursue similar channel partner opportunities.  Also, in the third
               quarter 2005 we employed a new sales and  marketing  executive to
               further expand our sales efforts.

     Management believes that these plans and new initiatives as discussed above
     will lead to  positive  cash  flows and  profitability.  While the  Company
     pursues  these goals the Company  also  believes  that its ability to raise
     additional   capital  through  equity  and  debt  placements  will  provide
     sufficient cash to meet cash  requirements  at least through  September 30,
     2007. There can be no assurance, however, that the Company will achieve the
     cash  flow  and  profitability  goals,  or that  it  will be able to  raise
     additional  capital  sufficient to meet operating expenses or implement its
     plans.  In such  event,  the  Company  may have to  revise  its  plans  and
     significantly  reduce its operating  expenses,  which could have an adverse
     effect on revenue and operations in the short term.

12.  New Accounting Pronouncements

     In June 2005, the EITF reached consensus on Issue No. 05-2, "The Meaning of
     `Conventional  Convertible  Debt  Instrument'  in  EITF  Issue  No.  00-19,
     `Accounting   for  Derivative   Financial   Instruments   Indexed  to,  and
     Potentially  Settled in, a Company's  Own  Stock.'"  Issue 00-19 is used to
     evaluate whether embedded  derivatives  should be bifurcated under SFAS No.
     133,  "Accounting for Derivative  Instruments and Hedging  Activities",  as
     amended.  Specifically,  SFAS 133 provides guidance as to when an issuer is
     required to bifurcate a conversion  option that is embedded in  convertible
     debt. However,  Issue 00-19 does not define "conventional  convertible debt
     instrument."  Given the development of numerous  contractual terms that may
     be  included  in a  convertible  debt  instrument,  it is not clear  when a
     convertible debt instrument is "conventional." The company does not believe
     that certain warrants meet the definition of conventional  convertible debt
     and as a result Issue No. 00-19 applies to the liability treatment of these
     instruments  (see Note 8). As such the  adoption of the Issue had an effect
     on the Company's financial position and results of operations (see Note 8).

                                                                              15
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005



     In September  2005, the FASB ratified the EITF Issue No. 05-7,  "Accounting
     for  Modifications  to Conversion  Options Embedded in Debt Instruments and
     Related Issues," which addresses whether

12.  New Accounting Pronouncements (continued)

     a modification  to a conversion  option that changes its fair value effects
     the  recognition  of interest  expense for the associated  debt  instrument
     after  the  modification,   and  whether  a  borrower  should  recognize  a
     beneficial  conversion  feature,  not  a  debt  extinguishment,  if a  debt
     modification  increases the intrinsic  value of the debt (for example,  the
     modification reduces the conversion price of the debt). The adoption of the
     Issue may have a material effect on our consolidated  financial position or
     results of operations in future periods.

     In September 2005, the FASB ratified the EITF's Issue No. 05-8, "Income Tax
     Consequences  of  Issuing  Convertible  Debt with a  Beneficial  Conversion
     Feature," which discusses  whether the issuance of convertible  debt with a
     beneficial  conversion  feature results in a basis difference  arising from
     the intrinsic value of the beneficial  conversion feature on the commitment
     date (which is recorded in the stockholder's equity for book purposes,  but
     as a liability  for income tax  purposes)  and, if so,  whether  that basis
     difference is a temporary  difference  under SFAS No. 109,  "Accounting for
     Income Taxes." The adoption of the Issue is not expected to have a material
     effect on our consolidated  financial  position or results of operations in
     future periods.

     In February  2006,  the FASB issued  SFAS No. 155  "Accounting  for Certain
     Hybrid Financial  Instruments,  an amendment of FASB Statements No. 133 and
     140" ("SFAS 155").  SFAS 155 clarifies  certain issues relating to embedded
     derivatives and beneficial  interests in securitized  financial assets. The
     provisions of SFAS 155 are effective for all financial instruments acquired
     or issued  after fiscal  years  beginning  after  September  15, 2006.  The
     Company is  currently  assessing  the impact that the  adoption of SFAS 155
     will have on its results of operations and financial position.

     In March 2006, the FASB issued SFAS No. 156,  "Accounting  for Servicing of
     Financial  Assets"  ("SFAS 156"),  which amends SFAS 140,  "Accounting  for
     Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
     Liabilities",  with respect to the  accounting  for  separately  recognized
     servicing assets and servicing liabilities.  SFAS 156 permits the choice of
     the amortization  method or the fair value measurement method, with changes
     in fair value recorded in income,  for the subsequent  measurement for each
     class of separately recognized servicing assets and servicing  liabilities.
     The statement is effective for years  beginning  after  September 15, 2006,
     with earlier adoption  permitted.  The Company is currently  evaluating the
     effect that adopting this  statement  will have on the Company's  financial
     position and results of operations.

     In June  2006,  the FASB  issued  Interpretation  No. 48,  "Accounting  for
     Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109".
     This  Interpretation  prescribes a recognition  threshold  and  measurement
     attribute for the financial statement  recognition and measurement of a tax
     position  taken  or  expected  to be taken in a tax  return,  and  provides
     guidance  on   derecognition,   classification,   interest  and  penalties,
     accounting  in  interim   periods,   disclosure,   and   transition.   This
     Interpretation  is effective for fiscal years  beginning after December 15,
     2006.  The Company is assessing  the impact of this  Interpretation  on its
     financial statements, but does not expect it to have a material effect.

     In  September  2006,  the FASB issued  Statement  of  Financial  Accounting
     Standards  ("SFAS")  No.  157,  "Fair  Value  Measurements".  SFAS No.  157

                                                                              16
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIALS STATEMENTS
                                   (Unaudited)

         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005


     clarifies the principle that fair value should be based on the  assumptions
     market  participants  would  use when  pricing  an asset or  liability  and
     establishes a fair value hierarchy that prioritizes the information used to
     develop those assumptions. SFAS No. 157 requires fair value measurements to
     be  separately  disclosed  by  level

12.  New Accounting Pronouncements (continued)

     within the fair value  hierarchy.  SFAS No. 157 is effective  for financial
     statements  issued for fiscal years  beginning after November 15, 2007, and
     interim  periods  within  those  fiscal  years.  The  Company is  currently
     evaluating  the impact of  adopting  SFAS No. 157 on its future  results of
     operations and financial.

     In September  2006,  the Securities  and Exchange  Commission  issued Staff
     Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year
     Misstatements  When  Quantifying  Misstatements  in Current Year  Financial
     Statements".   SAB  No.  108   provides   interpretive   guidance   on  the
     consideration  of the effects of prior year  misstatements  in  quantifying
     current year  misstatements for the purpose of assessing  materiality.  SAB
     No. 108 is effective for fiscal years ending after  November 15, 2006.  The
     Company is currently  evaluating  the impact of adopting SAB No. 108 on its
     future results of operations and financial condition.

13.  Related Party Transactions

     During the quarter ended June 30, 2006, the Company  terminated and settled
     the  consulting  agreement  with Mountain  Meadow Farm and its  associates,
     including SJ Associates  (collectively  "Mountain Meadow").  As part of the
     settlement the Company agreed to issue  Mountain  Meadow 90,638  restricted
     common shares  valued at $34,000 and to pay for the costs of medical,  life
     and certain  other  insurance  through  December 31, 2013 with the cost for
     such insurance not to exceed $200,000 in the aggregate or $50,000 in any 12
     month period.  At September 30, 2006,  the Company has recorded a liability
     of $144,000 representing the estimated present value of this obligation.

                                                                              17


<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES



Item 2 - Managements Discussion and Analysis or Plan of Operations

Forward looking statements

All statements  other than  statements of historical  fact included in this Form
10-QSB including, without limitation, statements under, "Management's Discussion
and Analysis of Financial  Condition  and Results of  Operations"  regarding the
Company's financial position,  business strategy and the plans and objectives of
management for future operations, are forward-looking  statements.  When used in
this Form 10-QSB, words such as "anticipate,"  "believe,"  "estimate," "expect,"
"intend"  and  similar  expressions,  as  they  relate  to  the  Company  or its
management, identify forward-looking statements. Such forward-looking statements
are based on the  beliefs of  management,  as well as  assumptions  made by, and
information  currently  available to, the Company's  management.  Actual results
could  differ  materially  from  those   contemplated  by  the   forward-looking
statements  as a  result  of  certain  factors  including  but not  limited  to,
fluctuations in future operating results, technological changes or difficulties,
management  of future  growth,  the risk of errors or failures in the  Company's
software products,  dependence on proprietary  technology,  competitive factors,
risks associated with potential  acquisitions,  the ability to recruit personnel
and the dependence on key personnel.  Such statements  reflect the current views
of  management  with respect to future events and are subject to these and other
risks,  uncertainties  and assumptions  relating to the  operations,  results of
operations, growth strategy and liquidity of the Company. All subsequent written
and oral  forward-looking  statements  attributable  to the  Company  or persons
acting  on its  behalf  are  expressly  qualified  in  their  entirety  by  this
paragraph.

Overview

We primarily operate as an application  service provider  ("ASP"),  providing an
integrated  transaction based "fee for service" offering called Invoices On-Line
(IOL),  an  electronic  invoice  presentment  and payment  (EIP&P)  service that
processes high volumes of transactional  data for invoice  presentment  purposes
delivered via the Internet on a global basis on behalf of our customers.  IOL is
our  primary  offering  and it is a globally  delivered  service  that  provides
electronic invoice  presentation in the Americas,  Europe and Asia, including 28
different  countries  around  the  globe  and in  more  than  13  languages  and
currencies.  We currently  host several  million  invoices  that are  accessible
"on-line" via the Internet 24 hours per day,  seven days per week,  365 days per
year. IOL is a uniquely positioned service offering in the industry. The service
is designed to handle the complex  invoicing  found in today's  global  business
environment.  The  solution  allows  Global 1000  companies  to receive,  route,
approve  and pay  invoices  on-line  in the  local  language  and  currency.  By
automating the traditional  paper-based  invoicing  process,  customers now have
easy and quick access to line-item billing information, reporting and analytics.
With the  enhanced  level of accuracy  provided  by IOL,  invoice  disputes  are
greatly reduced and overall customer satisfaction is substantially increased.

We also  provide  Custom  Engineering  Services  which  are  single  contractual
agreements involving  modification or customization of the Company's proprietary
ASP software solution. Additionally, we provide service offerings in the form of
our patented dbExpressTM  technology,  a management information tool that allows
users  to  visually  data  mine  large  volumes  of  transactional  data via the
Internet.  A complete  Internet Customer Care tool set integrated with the EIP&P
product set is also  available.  We operate fully redundant data centers located
at our main  office in  Bohemia,  N.Y.  and in Newark,  NJ. Our  facility in New
Jersey is space leased at an International Business Machines ("IBM"), e-business
Hosting  Center.  This  co-location  /  redundancy  feature  enables us to offer
virtually down time free service.

This suite of services enables us to provide a comprehensive  Internet delivered
service from the raw  transaction  record  through all of the internal  workflow
management processes including an electronically delivered invoice with customer
analytics.  This comprehensive service offering provides back office operations,
reduces our  customers'  costs and  provides for  improved  customer  service by
providing the end customer  with easy access to all of the detailed  information
about their bill.

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                      DIRECT INSITE CORP. AND SUBSIDIARIES



Currently, IBM, our largest customer, representing approximately 67.5% and 68.5%
of revenue  for the three and nine  month  periods  ended  September  30,  2006,
respectively  and 63.8% and 67.7% of our  revenue  for the three and nine  month
periods  ended  September  30,  2005,  respectively,  utilizes  our suite of IOL
products and services to allow their customers from around the globe to receive,
analyze,  dispute and cost allocate all of their invoice related  information in
their local  language  and  currency  via the  Internet 24 hours a day, 7 days a
week, 365 days a year. Our second Fortune 500 Company,  Electronic  Data Systems
Corp.  ("EDS"),  accounted for approximately  30.8% and 29.5% of revenue for the
three and nine month periods ended  September 30, 2006,  respectively  and 33.5%
and 29.8% of revenue for the three and nine month  periods  ended  September 30,
2005, respectively.

Critical accounting policies

     Principles of Consolidation
     ---------------------------

The consolidated  financial  statements  include the accounts of our company and
our subsidiaries.  All significant  intercompany  transactions and balances have
been eliminated in consolidation.

     Revenue Recognition
     -------------------

We record revenue in accordance  with Statement of Position 81-1,  issued by the
American  Institute of Certified  Public  Accountants  and SEC Staff  Accounting
Bulletin  Topic  13  "Revenue  Recognition  in  Financial  Statements."  In some
circumstances, we enter into arrangements whereby we are obligated to deliver to
our customer multiple products and/or services (multiple deliverables). In these
transactions, in accordance with the Emerging Issues Task Force Issue No. 00-21,
we allocate the total revenue to be earned among the various  elements  based on
their  relative  fair values.  We  recognize  revenue  related to the  delivered
products or services only if:

o Any undelivered products or services are not essential to the functionality of
the delivered products or services;

o Payment for the delivered products or services is not contingent upon delivery
of the remaining products or services;

o We have an  enforceable  claim to receive  the amount due in the event it does
not deliver the  undelivered  products or services and it is probable  that such
amount is collectible;

o There is  evidence of the fair value for each of the  undelivered  products or
services;

o Delivery of the delivered  element  represents the culmination of the earnings
process.

The  following  are the  specific  revenue  recognition  policies for each major
category of revenue.

     ASP Services
     ------------

We provide  transactional  data  processing  services  through our ASP  software
solutions to our  customers.  The customer is charged a monthly  fixed rate on a
per  transaction  basis or a fixed fee  based on  monthly  transaction  volumes.
Revenue is recognized as the services are performed.

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                      DIRECT INSITE CORP. AND SUBSIDIARIES



     Custom Engineering Services
     ---------------------------

We perform custom engineering  services which are single contractual  agreements
involving  modification  or  customization  of the our  proprietary ASP software
solution.  Progress is measured  using the relative  fair value of  specifically
identifiable output measures  (milestones).  Revenue is recognized at the lessor
of the  milestone  amount  when the  customer  accepts  such  milestones  or the
percentage  of  completion  of the contract  following the guidance of SOP 81-1,
"Accounting for  Performance of  Construction-Type  and Certain  Production Type
Contracts".

     Cost of Revenue
     ---------------

Cost of  revenue in the  condensed  consolidated  statements  of  operations  is
presented along with operations, research and development costs and exclusive of
amortization and depreciation  shown  separately.  Custom  Engineering  Services
costs  related to  uncompleted  milestones  are  deferred  and included in other
current assets, when applicable.

     Property and Equipment
     ----------------------

Property and equipment  are stated at cost and  depreciated  on a  straight-line
basis  over  the  estimated  useful  lives  of  the  related  assets.  Leasehold
improvements  are  amortized  over the  terms of the  respective  leases  or the
service lives of the related assets, whichever is shorter.

Capitalized lease assets are amortized over the shorter of the lease term or the
service life of the related assets.

     Impairment of Long-Lived Assets
     -------------------------------

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting  for the Impairment or Disposal of Long-Lived  Assets" we review our
long-lived  assets,  including  capitalized  software  costs  and  property  and
equipment,  for impairment whenever events or changes in circumstances  indicate
that  the  carrying  amount  of the  assets  may not be  fully  recoverable.  To
determine if impairment  exists,  we compare the estimated  future  undiscounted
cash flows from the related long-lived assets to the net carrying amount of such
assets.  Once it has been determined that impairment  exists, the carrying value
of the asset is adjusted to fair value.  Factors considered in the determination
of fair value include current operating results, trends and the present value of
estimated expected future cash flows.

     Derivative Liabilities
     ----------------------

On March  29,  2005,  we  entered  into a  Securities  Purchase  Agreement  with
investors  for  secured  notes and  warrants.  (See  Note 8 of the  accompanying
condensed consolidated financial statements).  The warrant shares are subject to
registration  rights penalties with provisions that are outside our control.  As
such the detachable warrants are required to be recorded as liabilities at their
fair value on the date of issuance under the guidance on EITF 00-19.

In accordance  with SFAS No. 133  "Accounting  for  Derivative  Instruments  and
Hedging Activities", at each reporting period these liabilities will be adjusted
for changes in their fair value.  The  detachable  warrants are valued using the
Black  Scholes  valuation  model.  Actual  period  close  common  stock  prices,
applicable  volatility  rates,  remaining  contractual life and the period close
risk free interest rate for the instruments  expected remaining life are the key
assumptions   used   in   the   Black   Scholes   valuation   calculation.   The
period-to-period changes in fair value will be recorded as either an addition or
charge to earnings.  There is no cash effect to these  additions or charges over
the life of these instruments. For the three and nine months ended September 30,
2006 we recorded  expense of $254,000 and income of $15,000,  respectively,  for
the change in the fair value of these derivative instruments.  For the three and
nine  months  ended  September  30,  2005 we  recorded  income of  $212,000  and
$120,000,  respectively,  as a  result  of the  change  in fair  value  of these
derivative instruments.

                                                                              20
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                      DIRECT INSITE CORP. AND SUBSIDIARIES

     Income Taxes
     ------------

We account for income taxes using the liability  method.  The  liability  method
requires the  determination of deferred tax assets and liabilities  based on the
differences  between the financial  statement and income tax bases of assets and
liabilities,  using enacted tax rates. Additionally, net deferred tax assets are
adjusted by a valuation allowance if, based on the weight of available evidence,
it is more  likely  than not that some  portion or all of the net  deferred  tax
assets will not be realized.

     Earnings per Share
     ------------------

We display  earnings per share in  accordance  with SFAS No. 128,  "Earnings Per
Share".  SFAS No. 128 requires dual  presentation of basic and diluted  earnings
per share.  Basic  earnings  per share  includes no dilution  and is computed by
dividing net income (loss)  attributable to common  shareholders by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share  include the  potential  dilution  that could occur if securities or other
contracts to issue common stock were  exercised or converted  into common stock.
Outstanding  stock options,  warrants and other  potential  stock issuances have
been considered in the  computation of diluted  earnings per share to the extent
they were dilutive.

     Concentrations and Fair Value of Financial Instruments
     ------------------------------------------------------

Financial  instruments that potentially  subject us to  concentrations of credit
risk consist  principally of cash and accounts  receivable.  We perform  ongoing
credit evaluations of our customers' financial condition and, generally, require
no collateral from our customers.  Unless otherwise disclosed, the fair value of
financial instruments approximates their recorded value.

     Use of Estimates
     ----------------

In preparing  consolidated  financial  statements in conformity  with accounting
principles  generally  accepted in the United States of America,  our management
makes estimates and assumptions  that affect the reported  amounts of assets and
liabilities and disclosures of contingent  assets and liabilities at the date of
the  consolidated  financial  statements,  as well as the  reported  amounts  of
revenue and expenses  during the reporting  period.  Actual results could differ
from those estimates.

Results of operations

For the  three  months  ended  September  30,  2006 we had  operating  income of
$416,000 compared to operating income of $75,000 in the same period in 2005. For
the nine months ended  September  30, 2006 we had  operating  income of $240,000
compared  to an  operating  loss of $306,000  for the same  period in 2005.  The
improvement in the operating  profit/loss is principally  due to the decrease in
operating  costs as discussed  below.  We had a net loss of $93,000 and $400,000
for the three and nine months ended September 30, 2006,  respectively,  compared
to net  income of  $128,000  and a net loss of  $558,000  for the three and nine
months ended September 30, 2005, respectively.

For the three months ended September 30, 2006 revenue decreased $327,000 (13.0%)
to  $2,185,000  compared to revenue of  $2,512,000  for the same period in 2005.
This decrease is primarily the result of an increase in our core  business,  the
ASP IOL services,  of $12,000 (0.7%) offset by a decrease of $339,000 (41.9%) in
revenue from engineering services.  For the nine months ended September 30, 2006
revenue  decreased  $514,000  (7.4%)  to  $6,396,000   compared  to  revenue  of
$6,910,000  for the nine months ended  September  30, 2005.  For the nine months

                                                                              21
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                      DIRECT INSITE CORP. AND SUBSIDIARIES



ended  September 30, 2006 revenue from the ASP IOL services  increased  $539,000
(12.6%) while revenue from engineering  services decreased  $1,043,000  (40.2%).
Engineering   services   revenue   decreased   principally   as  the  result  of
substantially  completing deployment of our IOL service in all major geographies
for our largest  customer,  IBM, and completion of the initial phases of our IOL
service for EDS. We  anticipate  that revenue  from  engineering  services  will
increase  as we begin new  initiatives  at both IBM and EDS and as we expand our
customer base although there can be no assurance that this will occur.

Costs of operations,  research and development  decreased by $247,000 (23.9%) to
$785,000 for the three months ended  September 30, 2006 and  decreased  $228,000
(7.4%) to  $2,851,000  for the nine months ended  September 30, 2006 compared to
costs of $1,032,000  and  $3,079,000  for the three and nine month periods ended
September 30, 2005,  respectively.  These costs consist  principally of salaries
and related expenses for software  developers,  programmers,  custom  engineers,
network services,  and quality control and assurance.  Also included are network
costs, costs of the production  co-location facility and other expenses directly
related to our custom  engineering and ASP services.  For the three months ended
September 30, 2006 the decrease is principally due to a decrease in salaries and
related  costs of $141,000,  professional  fees of $35,000,  rent of $55,000 and
software  expense of $26,000  offset by an  increase  in  purchased  services of
$31,000,  while all other costs  decreased  $21,000.  For the nine months  ended
September  30, 2006 the  decrease is due to  decreases  in salaries  and related
costs of $115,000,  professional  fees of $90,000,  rent of $48,000 and software
costs of $28,000  offset by an increase in  purchased  services of $77,000.  All
other costs decreased $24,000 for the nine month period.

Sales and marketing  costs were $296,000 and  $1,109,000  for the three and nine
month periods ended  September  30, 2006,  respectively,  a decrease of $220,000
(42.6%)  for the three month  period and a decrease of $438,000  (28.3%) for the
nine month period compared to costs of $516,000 and $1,547,000 for the three and
nine month periods ended September 30, 2005, respectively.  Salaries and related
costs decreased $148,000 and $165,000 for the three and nine month periods ended
September  30,  2006,  respectively,  while  professional  and  consulting  fees
increased  $2,000 and decreased  $112,000 for the three and nine month  periods,
respectively.  Additionally,  advertising and travel costs decreased $45,000 and
$122,000  for the  three  and nine  month  periods  ended  September  30,  2006,
respectively compared to the same periods in 2005.

General and administrative costs decreased $182,000 (22.9%) and $309,000 (13.6%)
to $612,000 and $1,957,000 for the three and nine month periods ended  September
30, 2006, respectively, compared to the same periods in 2005. The decreases were
principally  due to  decreases  in salaries  and related  costs of $105,000  and
$137,000  for the  three  and nine  month  periods  ended  September  30,  2006,
respectively.  For the three and nine months  ended  September  30,  2006,  rent
decreased  $45,000  and  $60,000,  professional,   legal  and  accounting  costs
decreased  $37,000  and  $21,000,  respectively,  compared to costs for the same
periods in 2005.  Commercial  insurance costs decreased  $15,000 and $43,000 for
the three and nine months ended  September 30, 2006,  respectively,  compared to
costs during the same period in 2005.  These  decreases were offset by increases
in other costs of $20,000 for the three  months ended  September  30, 2006 and a
decrease of other costs of $48,000 for the nine months ended September 30, 2006,
compared to cost for the same periods in 2005.

Depreciation and amortization  expense  decreased by $19,000 (20.0%) and $85,000
(26.2%) to $76,000  and  $239,000  for the three and nine  month  periods  ended
September  30,  2006,  respectively,  compared to costs for the same  periods in
2005. The decrease is primarily due to fully  amortizing  certain software costs
and other computer equipment.

For the three  months  ended  September  30,  2006 we recorded an expense on the
revaluation of the warrant  liability of $254,000 and a gain on the  revaluation

                                                                              22
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                      DIRECT INSITE CORP. AND SUBSIDIARIES



of $15,000 for the nine months ended  September 30, 2006,  compared to a gain of
$212,000 and $120,000 for the three and nine month periods  ended  September 30,
2005, respectively.

For the three  and nine  months  ended  September  30,  2006,  interest  expense
increased   $54,000  and  $182,000  to  $210,000  and  $543,000,   respectively,
principally  due to the  amortization of debt discount of $153,000 and $375,000,
for the three and nine month  periods,  respectively,  offset by a  decrease  in
interest  due to  lower  rate  of  borrowing  under  our  receivables  financing
agreements.

Other  expense net of other  income was $45,000 and  $108,000  for the three and
nine months ended September 30, 2006 compared to other expense net of $1,000 for
the three and nine months ended September 30, 2005. During the nine months ended
September  30, 2006 we realized a gain on the sale of an  investment of $59,000.
This was offset by $120,000 due to  penalties  incurred in  connection  with the
Sigma and MetVP  financing (see Note 8 to the Condensed  Consolidated  Financial
Statements) and $32,000 of expenses related to the settlement and termination of
a consulting agreement.


Financial Condition and Liquidity

For the nine  months  ended  September  30,  2006,  we had net loss of  $400,000
compared to a net loss of $558,000 for the same period in 2005. Cash provided by
continuing  operations was $914,000 in the first nine months of 2006 compared to
cash used in  continuing  operations of $120,000 for the same period in 2005, an
improvement of $1,034,000.

Cash provided by operations,  including cash used for  discontinued  operations,
for the nine months ended September 30, 2006 was $895,000, consisting of the net
loss  of  $400,000,   reduced  by  non-cash  expenses  of  $735,000,   including
depreciation   and   amortization   of  property  and   equipment  of  $239,000,
amortization of debt discount of $375,000,  amortization of deferred stock-based
compensation  of  $136,000  and the  change  in the fair  value  of the  warrant
liability  of  ($15,000).  In  addition  accounts  receivable  were  reduced  by
$430,000,  prepaid expenses decreased $146,000, and accounts payable and accrued
expenses increased $217,000.  This was offset by an decrease in deferred revenue
of $225,000.

Cash  used in  investing  activities  was  $73,000  for the  nine  months  ended
September  30,  2006,  compared  to $196,000  for same period in 2005.  This was
principally expenditures for equipment.

Cash used in  financing  activities  totaled  $482,000 for the nine months ended
September  30,  2006,  compared to cash  provided  by  financing  activities  of
$130,000 for the nine months ended September 30, 2005. We received proceeds from
a new loan  financing  of $750,000  in the first nine months of 2005.  We repaid
$118,000 of long-term debt and capital lease obligations  during the nine months
ended September 30, 2006 and the balance  outstanding under short term revolving
loans for receivables financing decreased by $364,000 in 2006.

Management's Liquidity and Financing Plans

In order to meet our cash  requirements and to achieve  positive  operating cash
flows we have and will  continue  to take  various  actions  and  steps  that we
believe will enable us to attain these goals. These actions include:

     o    In March 2005 we closed a Bridge  Loan  financing  with Sigma  Capital
          Partners LLC and  Metropolitan  Venture Partners II, L.P. and received
          proceeds of $750,000  less legal fees of $55,000  (see Note 8).  These
          loans were repaid subsequent to September 30, 2006.

     o    The  holders  of the  Series  A and  Series  B  Preferred  stock  have
          previously agreed to defer payment of dividends until February 1, 2006

                                                                              23
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                      DIRECT INSITE CORP. AND SUBSIDIARIES



          and April 15, 2006, respectively. We may seek to defer these dividends
          further.  Management  believes that we are precluded from paying these
          dividends at this time pursuant to Delaware General Corporate Law.

     o    We may raise  additional  capital through private equity offerings and
          borrowing.  There is no assurance  however that such capital  would be
          available to us, or if available,  on terms and conditions  that would
          be  acceptable.  In 2004,  we entered into an agreement  with DIRI Rec
          Fund LLC, a corporation formed and funded to loan funds to the Company
          against accounts  receivable,  and may receive advances up to $250,000
          from  Diri  Rec  Fund  (see  Note  7  of  the  accompanying  condensed
          consolidated financial statements).  Further, in June 2005, we renewed
          for a period of two years the $500,000  loan  previously  scheduled to
          mature on June 30, 2005 and the guarantors of this loan have consented
          to  this  extension  (see  Note  8  of  the   accompanying   condensed
          consolidated  financial   statements).   The  guarantors  were  issued
          warrants and we could  receive  proceeds of $500,000 from the exercise
          of such warrants  which expire on July 11, 2010,  although there is no
          assurance that these warrants will be exercised.

     o    We continue  to strive to increase  revenue  through  offering  custom
          engineering   services,   expanding  and  enhancing  existing  product
          offerings such as IOL, and introducing new product offerings.  In 2004
          we entered  into a new  agreement to provide IOL services to a Fortune
          500 company.  Revenue from this new customer  accounted  for 30.8% and
          29.5% of total  revenue for the three and nine months ended  September
          30, 2006.  We  anticipate  that  revenue  from this new customer  will
          continue to increase in 2006 and beyond and expect to further  broaden
          our customer base in 2006, although there is no assurance that we will
          be able to broaden this customer base.

     o    In 2006 we  initiated  a cost  reduction  plan that has  significantly
          reduced  our  operating  costs  while  still  enabling  us to meet our
          commitments to our customers.  Operating  costs decreased by 27.4% and
          14.7% for the three and nine month  periods  ended  September 30, 2006
          compared to the same periods in 2005.

     o    We continue to expand our  marketing  efforts in order to increase the
          customer base. In this regard,  in 2003, we became a business  partner
          with IBM and through this  relationship  will work with IBM to achieve
          sales to new customers. As a result of this relationship, in the first
          quarter  of 2006 we  began  deployment  of our  IOL  service  to a new
          outsourcing  customer  of IBM.  We will  continue  to  pursue  similar
          channel  partner  opportunities.  Also,  in the third  quarter 2005 we
          employed a new sales and  marketing  executive  to further  expand our
          sales efforts.

We believe that these plans and new  initiatives as discussed above will lead to
positive  cash  flow and  profitability.  While we  pursue  these  goals we also
believe that our ability to raise  additional  capital  through  equity and debt
placements  will  provide  sufficient  cash to meet cash  requirements  at least
through  September 30, 2007.  There can be no assurance,  however,  that we will
achieve the cash flow and profitability  goals, or that we will be able to raise
additional capital sufficient to meet operating expenses or implement its plans.
In such  event,  we may have to revise  our plans and  significantly  reduce our
operating expenses, which could have an adverse effect on revenue and operations
in the short term.


                                                                              24
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                      DIRECT INSITE CORP. AND SUBSIDIARIES


Item 3 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures
-------------------------------------------------

The Company maintains disclosure controls and procedures designed to ensure that
information  required  to be  disclosed  in the reports it files with the SEC is
accumulated  and  communicated to management,  as  appropriate,  to allow timely
decisions  regarding  required  disclosure,  and such  information  is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
SEC's  rules and  forms.  The  Company's  Chief  Executive  and Chief  Financial
Officers are  responsible  for  establishing,  maintaining  and enhancing  these
procedures.  They are also responsible,  as required by the rules established by
the SEC, for the evaluation of the effectiveness of these procedures.

Based on their  evaluation of the Company's  disclosure  controls and procedures
which took place as of September 30, 2006, the Chief  Executive  Officer and the
Chief Financial  Officer  believe that these  procedures were not effective as a
result of limited  resources and a limited  segregation  of duties in accounting
and financial  reporting.  The Company has a limited  number of personnel in the
finance and accounting area and therefore one person performs various accounting
functions where a greater segregation of duties would permit checks and balances
and reviews that would improve internal  control.  The Company has been aware of
this  weakness  since  January  2004 at which  time the staff of the  accounting
department  was reduced.  Since that date the Company  retains a consultant on a
part-time  basis to assist  with the  financial  closing  and  financial  report
preparation process.  The part-time  consultant is qualified,  holds a degree in
accounting  and has several  years of  experience  in  accounting  and financial
reporting. The Company incurs approximately $60,000 annually for these services.
As a result the Chief Financial  Officer devotes  substantive  time to reviewing
the accounting  records and financial  reports and the Company expects that this
will continue until financial  resources permit engaging  additional  accounting
staff.  The Company has not determined at this time when such  additional  staff
will be employed.

Changes in Internal Control Over Financial Reporting
----------------------------------------------------

The  Company  maintains  a system  of  internal  controls  designed  to  provide
reasonable   assurance  that   transactions  are  executed  in  accordance  with
management's  general or specific  authorization;  transactions  are recorded as
necessary to (1) permit  preparation of financial  statements in conformity with
accepted  accounting  principles  generally  accepted  in the  United  States of
America,  and (2)  maintain  accountability  for  assets.  Access  to  assets is
permitted   only  in   accordance   with   management's   general  or   specific
authorization.  The Company is a small business  issuer and therefore is not yet
subject to the evaluation of internal control requirements of Section 404 of the
Sarbanes-Oxley  Act of 2002 (the "Act") and  therefore is not yet subject to the
reporting  requirements of Regulation S-B, Items 308(a) and (b), and, therefore,
has not fully complied with these requirements. The Company is required to be in
compliance  with  Section 404 of the Act and report  thereon for the fiscal year
ended  December  31,  2007 and in this  regard  has begun to  develop a plan for
compliance  and expects to engage  outside  consultants  to design and implement
this plan.


Since the date of the most recent evaluation of the Company's  internal controls
over financial  reporting by the Chief Executive and Chief  Financial  Officers,
there have been no changes in such  controls or in other factors that could have
materially  affected,  or is  reasonably  likely  to  materially  affect,  those
controls,   including  any   corrective   actions  with  regard  to  significant
deficiencies and material weaknesses.

It is the  responsibility of the Company's  management to establish and maintain
adequate internal control over financial reporting.  However, due to its limited
financial  resources,  there is only limited  segregation  of duties  within the
accounting function,  leaving most significant aspects of financial reporting in

                                                                              25
<PAGE>
                      DIRECT INSITE CORP. AND SUBSIDIARIES



the hands of the CFO. As noted above,  we have  engaged a  consultant  to assist
with  the  financial  closing  process  and  the  preparation  of our  financial
statements.  Our Chief  Financial  Officer  thoroughly  reviews  the work of the
consultant and the consultant reviews the work of the Chief Financial Officer.

Our independent auditors have reported to our Board of Directors certain matters
involving  internal  controls that our independent  auditors  considered to be a
reportable condition and a material weakness, under standards established by the
American Institute of Certified Public  Accountants.  The reportable  conditions
and material weakness relate to limited segregation of duties and the absence of
reviews and approvals  beyond that performed by the Chief Financial  Officer and
the consultant as mentioned above, of transactions and accounting entries. Given
these  reportable  conditions and material  weaknesses,  as described above, the
Chief Financial Officer and the consultant  devoted  additional time to closing,
preparing and reviewing the report for the nine months ended September 30, 2006.

                                                                              26

<PAGE>


                      DIRECT INSITE CORP. AND SUBSIDIARIES

                           PART II - OTHER INFORMATION





Item 1. Legal Proceedings

     None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     On October 4, 2006 the Company issued 144,000  restricted  common shares to
Lawrence Hite, an investor in the Company, for consulting services.

     On October 4, 2006 the Company issued 100,000  restricted  common shares to
the Company's legal counsel for legal services.

     On October 4, 2006 the Company  issued 41,683  restricted  common shares to
Metropolitan Venture Partners II L.P., an investor in the Company, for interest.

     On August 4, 2006 the Company issued 64,729  restricted  common shares to a
consultant for partial settlement of the consulting agreement.

     The above  shares were issued  pursuant to an exemption  from  registration
under Section 4(2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

     None

Item 4. Submission of Matters to a Vote of Security Holders

     None

Item 5. Other Information

     None

Item 6. Exhibits


     31   Certifications  pursuant  to Rules  13a-14(a)  as adopted  pursuant to
          Section 302 of the Sarbanes-Oxley Act of 2002.
     32   Certifications  pursuant to 18 U.S.C. Section 1350 as adopted pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002.


                                                                              27




<PAGE>


                      DIRECT INSITE CORP. AND SUBSIDIARIES

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.




DIRECT INSITE CORP.




/s/ James A. Cannavino
-------------------------------------------
James A. Cannavino, Chief Executive Officer                November 17, 2006



/s/ Michael J. Beecher
-------------------------------------------
Michael J. Beecher,  Chief Financial Officer               November 17, 2006


                                                                              28